Estate Planning
What the exam tests
Estate Planning tests how wealth passes on death and during life: wills, intestacy, inheritance tax, trusts, gifts and powers of attorney.
Core rules
- A valid will requires capacity, intention and formal execution; intestacy follows a statutory order and may not match wishes.
- Inheritance tax: nil rate band, residence nil rate band where a home passes to direct descendants, 40% above thresholds, reduced to 36% where at least 10% of the baseline estate goes to charity.
- Potentially exempt transfers become exempt after seven years; taper relief reduces tax on failed PETs. Annual exemptions and spousal exemption matter.
- Trusts separate legal and beneficial ownership; bare trusts are simple, discretionary trusts are flexible but taxed.
- Probate, lasting powers of attorney and business or agricultural relief should be reviewed.
Worked example
An estate is £700,000, including a £300,000 home left to children. Nil rate band £325,000 plus residence nil rate band £175,000 = £500,000. Taxable estate = £200,000. IHT at 40% = £80,000. If the surviving spouse's unused bands are transferable, the threshold can rise to £1,000,000, reducing the bill to nil. The residence nil rate band tapers where the estate exceeds £2,000,000.
Traps
- Treating PETs as immediately exempt.
- Ignoring the residence nil rate band taper.
- Forgetting transferable nil rate bands.
- Assuming a will covers jointly owned or nominated assets.
- Overlooking trust taxation and ten-year charges.